Japan’s property investment rebounds with a US$22.8 billion surge, why capital is rotating to Tokyo and the “living” sectors

Fresh data show global investors returning to Japan’s real estate at scale. South China Morning Post reports that investment into Japanese property jumped to roughly US$22.8 billion recently, with Tokyo alone capturing about US$13.2 billion in the first half of 2025. That momentum is most visible in multi-family portfolios and prime commercial assets.

This piece unpacks where the money is coming from, why comparative yields and a still-weak yen are pulling capital toward Japan, how investors are balancing China risk, and what to watch as the Bank of Japan edges toward a more normal rate path.

What actually happened and why it matters now

According to the South China Morning Post’s late-August wrap on MSCI Real Assets data, Tokyo led all Asia-Pacific metros with around US$13.2 billion of transactions in the first half of 2025. The same reporting pegs nationwide inflows at roughly US$22.8 billion as buyers resumed portfolio trades and club deals that had been on pause in 2023–2024. Independent summaries by research trackers echo the Tokyo figure and attribute the rebound to renewed cross-border activity, especially into the living sector. The headline is clear. Liquidity is back, and it is concentrating in the metro with the deepest leasing base and the most lender comfort.

A brief read on the rate and currency backdrop

The Bank of Japan has kept short-term rates around 0.5 percent while signalling it may tighten further as inflation persists and wage growth broadens. Minutes and press coverage over the past week highlight dissenting votes for a 0.75 percent move and growing talk that an additional hike is possible in the near term.

Even so, Japanese policy remains looser than in other major markets, keeping hedged borrowing costs and debt service comparatively benign for real estate. The currency has stayed weak by historical standards through most of 2025, a tailwind for dollar and euro investors who hedge judiciously, and a competitive advantage for hospitality and retail operators tied to inbound tourism. Rate normalisation is coming, but from a very low base.

Why cross-border capital is rotating to Japan

Foreign buyers are leaning into Japan for three reasons that show up repeatedly in manager surveys and broker reports. First is relative value. Mid-cycle cap rates in Tokyo have adjusted modestly higher over 2024–2025, while rent growth in prime submarkets has firmed and vacancy remains low. CBRE’s mid-year outlook upgraded 2025 investment expectations for the region on the back of strong demand in Japan, arguing that deeper positive yield spreads and fund-raising momentum would support transactions.

Second is liquidity. Japan offers institutional scale across office, living, logistics and hospitality, which is crucial when large funds need to deploy or recycle capital without getting trapped in illiquid niches. Third is diversification away from China. As China’s property market has stayed fragile, Asia-focused capital has reweighted toward Japan as the anchor allocation in the region, complementing selective positions in Singapore and Korea.

The living thesis is doing the heavy lifting

H1 2025 was marked by outsized interest in residential strategies. AEW’s regional perspective tallied nearly US$10 billion into apartments, serviced apartments, student housing and seniors housing across Asia-Pacific, the highest half-year since records began in 2007. Japan is the heart of that rotation because of institutional-grade stock in Tokyo, Osaka and Nagoya, transparent leasing data, and stable occupancy through cycles.

Portfolio deals in Tokyo and commuter belts are attractive to global core-plus funds seeking inflation-linked cash flows with limited volatility. The operating story is straightforward. Smaller unit sizes, professionally managed stock, and a deep tenant base produce predictable rent rolls, while demographic churn keeps turnover manageable.

Office is not dead in Tokyo, it is bifurcating

Cushman & Wakefield’s H1 2025 capital-markets brief shows that office was the only sector to record year-on-year growth in transaction volume over the last twelve months, driven by rental resilience in central Tokyo and renewed investor appetite for prime towers that meet modern ESG and wellness specs. This is not a blanket recovery. Secondary assets with capex overhangs still clear slowly. But lenders have become more comfortable backing well-leased, centrally located product with transparent cash flow growth. Repositioning plays remain viable where owners can deliver energy-efficiency upgrades and floorplate reconfigurations without disrupting tenants.

Logistics and hospitality sketch the next wave

Logistics remains steady, underpinned by e-commerce penetration, regional distribution strategies, and construction pipelines that have moderated as costs rose. Developers with land banks near expressways and ports continue to move projects forward, but mezzanine terms and take-out assumptions have been reset to reflect higher base rates. Hospitality is the more interesting cyclical story. A weak yen has kept inbound tourism strong, which supports RevPAR and underwriting confidence for select-service and lifestyle brands in Tokyo, Osaka and key leisure destinations. The risk is overshoot if the yen strengthens abruptly or if staffing shortages cap service delivery. Investors are therefore prioritising operators with flexible labour models and data-driven revenue management.

Comparative yields and the China reweighting

The yield conversation is where Japan shines for cross-border allocators. Even after modest cap-rate expansion in 2024, prime residential and logistics yields in Tokyo still price at a premium to equivalent risk assets in Europe’s core and in parts of the United States, once you adjust for local debt costs and rent-growth prospects. Several managers have publicly flagged that, for diversified APAC mandates, adding Japanese living and logistics has been their primary way to offset China development risk without sacrificing liquidity. Cross-border inflows since late 2024 nearly doubled year on year by some estimates, with the biggest jumps coming from pan-Asian funds and North American capital looking for a dependable income engine while they wait for clarity in China.

Tokyo’s US$13.2 billion lead tells you where execution certainty lives

The Tokyo number is not just trivia. It maps directly to execution risk. Buyers go where they can underwrite leasing, secure debt, and exit if needed. Tokyo’s deep occupier base, established lender pool and global broker coverage compress the unknowns that often derail deals in thinner markets. The MSCI-referenced US$13.2 billion in H1 trades line up with what we are hearing from banks and managers that total deal scrutiny has intensified, but when a dossier checks out, capital is available and committees are willing to sign. Secondary metros are trading too, particularly for living and logistics, but Tokyo remains the cleanest institutional entry point. 

The currency question you will be asked in every IC meeting

Dollar and euro investors like to say the yen is a free option. That is not quite right, but the basic insight holds. A structurally weaker yen improves inbound demand and lowers unhedged entry pricing in foreign currency terms. Many institutions hedge a large share of the exposure, which reduces FX noise but introduces a carry cost that has widened with global rates. The practical approach we see in 2025 underwriting is selective hedging by strategy. Shorter-hold or core-plus business plans are often fully hedged. Longer-duration core investors sometimes accept partial hedges when their view on BOJ normalisation is benign and asset cash flows have inflation protection. With BOJ signalling possible further tightening, committees are asking for explicit FX scenarios and clear policies on rolling hedges.

Risks you must price into bids this quarter

Rate drift is first. If BOJ hikes again in the coming months, even by 25 basis points, cap-rate expectations could widen another notch in subsectors with thin rental growth. That argues for conservative exit yields in underwriting. Construction inputs and labour availability are the second risk, though they matter most for repositioning and development rather than stabilized income assets. The third is earthquake insurance and resilience capex, which global lenders now weigh with more discipline. Finally, take seriously the bifurcation across offices. The 2025 winners are already energy efficient, near transit, and offer high-amenity stacks that support hybrid work. The losers will need more than cosmetic capex to move the needle. Recent Japan outlooks from global managers capture this spread and advise treating rental growth as the main driver of returns while value declines remain modest and new supply is limited.

How different buyer groups are playing it

Core global funds are leaning into Tokyo multi-family portfolios and select prime offices where NOI growth is visible and financing is straightforward. Core-plus platforms are pursuing light-to-medium repositioning in offices and last-mile logistics where green capex can lift rents and improve exit liquidity. Opportunistic capital is circling corporate carve-outs and non-core disposals by J-REITs or corporates keen to recycle capital. Domestic institutions continue to anchor many deals, especially where relationship lending lowers friction. Pan-Asian managers are using Japan as the anchor weight in regional strategies to balance China exposure while keeping dry powder for a China turn when policy stabilises.

How this changes the pipeline your clients care about

For developers and operators, the rebound means term sheets for forward purchases and partial sales are back on the table, but diligence is deeper. For lenders, stronger foreign demand broadens the borrower set beyond traditional domestic sponsors, with greater emphasis on governance, reporting cadence and ESG. For occupiers, especially in prime office and high-spec logistics, the capital inflow supports asset upgrades that will show up in leasing choice. The near-term implication for pricing is a firmer floor under multi-family and prime office, with selective compression possible where bidding is competitive and debt terms are favourable.

What to watch through year end

The first variable is BOJ guidance and market-implied path for policy rates. A surprise hike would test bid-ask in secondary assets. The second is the yen. A strong rally would dent the inbound travel story and unhedged total-return math; a further slide would extend the hospitality tailwind and foreign-currency discount. The third is Tokyo’s transaction cadence. If Q3–Q4 volumes hold near Q2’s pace, the 2025 rebound will look durable rather than a one-off catch-up. Broker tallies already show a sharp year-on-year increase in Q2 volume to roughly ¥974 billion, with overseas buyers active in office, residential and logistics. Keep an eye on portfolio trades as a macro proxy. When multi-family and logistics portfolios clear without heavy re-trades, confidence up the risk curve improves.

Summary

The story is not just that money is back. It is where and why it is landing. Japan offers comparative yield, policy stability even as BOJ normalises, and asset classes where income quality is high and supply is disciplined. Tokyo holds the volume crown because it minimises execution risk and maximises exit optionality. Living strategies carry the momentum because they trade liquidity for resilience better than any other Asia-Pacific niche right now. For investors rebalancing China risk, Japan is doing the heavy lifting in regional portfolios and will likely continue to do so into 2026, provided rates rise gradually and leasing fundamentals stay firm.